WASHINGTON, April 19 (Reuters) - The former chairman of one
of the largest mortgage firms to collapse in the recent U.S.
housing market crash was found guilty on Tuesday of
masterminding one of the biggest bank frauds ever, the Justice
Department said.

It said Lee Farkas of Taylor, Bean & Whitaker Mortgage Corp
was convicted on all 14 counts of bank, securities and wire
fraud, as well as conspiracy to commit fraud.

Assistant Attorney General Lanny Breuer told reporters
Farkas masterminded the multibillion-dollar, 10-year fraud
scheme that led to TBW's downfall and the collapse of a top 50
U.S. bank, Colonial BancGroup Inc's CBCDQ.PK Colonial Bank.

The guilty verdict by a federal jury in Alexandria,
Virginia, represented a victory for the Obama administration,
which has brought few cases involving senior executives at
major financial institutions after the housing crisis.

"This is a very momentous and a very significant case,"
said Breuer, the head of the Justice Department's Criminal
Division.

Breuer and another department official called it one of the
largest bank frauds in history.

The jury deliberated part of Monday and on Tuesday before
returning the guilty verdict after a two-week trial.

A federal judge set sentencing on July 1. A department
spokesman said Farkas faces a maximum penalty ranging from 20
to 30 years in prison.

Fraud at TBW led to at least $1.9 billion in losses,
including to federal housing programs and maybe billions more,
prosecutors said. TBW and the bank both filed for bankruptcy in
August 2009.

Alabama-based Colonial Bank was shut down by bank
regulators and most of its assets were sold to BB&T Corp
(BBT.N). The Federal Deposit Insurance Corp estimated the
closure cost the Deposit Insurance Fund about $2.8 billion.

Farkas was charged with trying to cover up massive losses
at TBW by moving funds around between accounts at Colonial Bank
and also selling mortgage loans that either did not exist, were
worthless or had already been sold.

He and his co-conspirators were accused of misappropriating
money from one of its own funding vehicles, which had two major
investors: Deutsche Bank AG (DBKGn.DE), which had agreed to buy
up to $1.25 billion in commercial paper and BNP Paribas SA
(BNPP.PA), which had agreed to buy up to $500 million.

GUILTY PLEAS BY FORMER TOP EXECUTIVES

Before Farkas went on trial, several former executives from
TBW and Colonial Bank pleaded guilty for their roles in the
fraud, including former TBW chief executive officer Paul Allen,
and many of them testified during the trial.

Farkas took the witness stand near the end of the trial to
deny any wrongdoing, describing the firm he built as "my life"
and that any fake loans on TBW's books were merely "mistakes,"
which happened regularly in the mortgage industry.

He said TBW crashed because it was "growing too fast and it
was too, in retrospect, too highly leveraged."

Farkas said the former executives at TBW and Colonial Bank
pleaded guilty because they were scared and "just tried to save
themselves. ... I don't think that they did anything wrong and
I don't think they thought they did anything wrong either."

As losses mounted at TBW, the firm tried to drum up capital
to help Colonial Bank win $553 million in funding from the
federal bank bailout program known as the Troubled Asset Relief
Program, prosecutors said. No money was disbursed.

The verdict comes as the Obama administration has been
criticized by lawmakers for moving too slowly to bring major
cases against senior executives at financial institutions.

Earlier this year, federal prosecutors dropped a probe of
former Countrywide Financial CEO Angelo Mozilo after
determining his actions in the mortgage morass did not amount
to criminal wrongdoing.
(Editing by Bernard Orr, Carol Bishopric and Andre Grenon)